Dog days of August for stocks

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is
principal of Marder Investment Advisors Corp. and a contributor to
The Gilmo
Report. Previously, he served as chief market strategist for Ladenburg Thalmann
Co. and developed institutional fixed-income risk management software for
Capital Management Sciences.

Word that Federal Reserve officials are leaning toward further accommodation did little to rescue shares from an uneventful outing Wednesday. The lightly-attended session, with Nasdaq volume below average for the ninth time in 10 days, is nonetheless viewed as another positive in a string of positives.

As the chart below shows, shares have found support at about the same area for four days running. The action of the past several days — a contraction of the travel range on dim volume — is similar to the prior tightness seen in the range labeled "A" in the chart, and a plus.

That this comes on the heels of the mark-up late last week indicates institutions are unwilling to sell into strength. They are content to sit on positions ahead of the Fed's Jackson Hole meeting at month-end.

To be sure, there is not a lot of conviction behind this move. Yet in light of this being the dog days of August, one of the two quietest periods of the year, it would be premature to penalize this advance. Lightly attended sessions are what the dog days are all about.

Every year at this time, the view here is to expect some turbulence in September/October. That would be a logical time to expect a correction. Having said this, as a speculator, a position trader, it is best to refrain from blindly adhering to a script. The market does not know of your script.

Letting the market tell its own story is what matters.

Among the names, it has been some time since gold was discussed here in terms of anything actionable. To review, the June 5 report mentioned that "...GLD put in a tradable low on May 30...using the May 30 low of 148.53 as a protective stop in case proven incorrect. This is viewed as a reasonable risk in exchange for the potential of entering early in a short- or intermediate-term trend higher."

The action of the past two days in SPDR Gold Trust
GLD, +0.51%
presents an opportunity to add to the junior-sized position spoken about on June 5 ("A" in the below chart). The protective stop-loss gets moved up from the May 30 low to just below the July 24 swing low of 152.20 ("B").

iShares Silver Trust's
SLV, -0.19%
breakout preceded GLD's breakout by a day. Silver is much more sensitive to the economic cycle than gold. This by virtue of its use as an industrial metal. Since Aug. 2, GLD is +4%, SLV +10%. SLV can be expected to outperform GLD and can be entered here, using a protective stop of just below 26.87, the Aug. 14 swing low.

Acadia Healthcare
ACHC, -9.08%
an operator of facilities providing psychiatric services, was noted here on Aug. 14 ("...there is doubt a five-week, 25% deep base can yield an August breakout that follows through for a 20%-25% win. The shares warrant watching to see how they act over the next weeks.").

Since then, the stock has been able to add to its cup base. Ideally, it pulls back to form a handle to go with its cup. If not, the July 5 high acts as a pivot point for entry by an aggressive speculator who understands the risks related to a young issue with an average dollar volume of $4.4 million. ACHC is not very liquid, and potentially volatile. A protective sell stop of 7% or so below entry is reasonable.

Fortune Brands
FBHS, -2.29%
a provider of kitchen and bath products, is a play on the housing sector's resurgence. Most analysts expect earnings growth of 35%-40% in '12-'13. Although this is not the type of company normally associated with being a big winner in a bull market, Fortune's fast forecasted earnings growth, the stock's ability to double since last autumn, and the favorable technical pattern make this one to consider.

Technically, the stock is working on a three-and-a-half-month basing pattern. Over the past two weeks, price has begun to show smoother action compared with a rougher look to most of the base. Aug. 17's high of 24.66 represents a potential pivot for a junior-sized position.

Elsewhere, Carter's
CRI, -0.60%
and Sally Beauty Holdings
SBH, -1.47%
have set up. Both are being monitored to see how they finish their patterns.

In summation, the averages continue to show good tone, as do leading growth stocks. Volume is late-summer light. In light of the market's recent gains, a pullback would not come as a surprise.

At the time of this writing, of the stocks mentioned in this report, Kevin Marder or an affiliate thereof held no positions, though positions are subject to change at any time and without notice. The information contained herein may have been previously disseminated.

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